Form 1099-INT Basics

The IRS Form 1099-INT (Interest Income) is used by banks, financial institutions, and other entities to report interest income paid to their customers during the tax year.

In general, if the account holder receives $10 or more in interest income, the payor must file Form 1099-INT and provide the recipient with a copy.

Sample Video Tutorial on Foreign Taxes Withheld

The topic covered in this video tutorial and blog post covers Form 1099-INT, which reports foreign taxes withheld on foreign source interest income. The taxpayer uses this information to report their interest income and calculate available foreign tax credits.

Generally, U.S. taxpayers must report their worldwide income and pay U.S. federal income taxes on income from every source, whether it’s U.S. or foreign source income.

To the extent a taxpayer has foreign source income subject to foreign withholding taxes, they may be eligible for a foreign tax credit (FTC).

Sample Fact Pattern

In this example, the account holder has Box 1 taxable interest income of $1,150. Box 5 reports $50 of foreign tax paid to Barbados. The $50 of foreign taxes paid to Barbados is the amount of tax owed to the government for a nonresident’s investment in foreign bonds.

In the supplementary information, the taxpayer notes that of the $1,150 of total interest income reported, $1,000 of the interest income is foreign source interest from bonds issued by Barbados. The remaining $150 of interest income is U.S. source interest.

The taxpayer reports the total $1,150 of interest income on Schedule B (Interest & Dividends) because the total interest amount is taxable for a U.S. taxpayer. Remember, the taxpayer must report all of his U.S. source and foreign source interest.

The taxpayer prepares Form 1116 (Foreign Tax Credit) to report the foreign source interest income and calculate what amount, if any, is available as a foreign tax credit. He reports foreign interest income of $1,000 on Line 1a of Part I of Form 1116 and reports $50 of foreign tax withheld in Part II (Foreign Taxes Paid or Accrued).

Form 1116 Part III calculates the limitation on the amount of foreign taxes available as a credit. The limitation for this taxpayer is $140, which is sufficient to cover the $50 of foreign taxes paid. Therefore, the taxpayer can use the full $50 as an FTC amount to offset his federal tax liability.

Key Elements on Form 1099-INT for 2023

Box 1: Interest Income: The gross taxable interest income received during the calendar year.

Box 2: Early Withdrawal Penalty: Penalties charged to the account holder for the early withdrawal of certain types of savings accounts, such as certificates of deposit.

Box 3: Interest on U.S. Savings Bonds and Treasury Obligations: Taxable interest from U.S. Treasury bonds, bills, notes, and savings bonds. Federal interest income is subject to federal income taxes; however, it is generally exempt from state income taxes.

Box 4: Federal Income Tax Withheld: Any federal income tax withheld under the backup withholding rules under IRC Section 3406.

Box 6: Foreign Taxes Paid: If the amount of interest income includes any foreign source interest income that was subject to foreign withholding taxes, the foreign tax withheld is generally passed to the account holder and can be used as a foreign tax credit (FTC). FTC for individuals is reported on Form 1116 (Foreign Tax Credit).

Box 8: Tax-Exempt Interest: Interest income that is exempt from federal income tax, such as municipal bond interest income. Although the interest may be exempt from federal income taxes, it may be subject to state income taxes, depending upon your residency.

Box 9: Specified Private Activity Bonds Interest: The amount in Box 9 represents the portion of tax-exempt interest income that is private activity bond (PAB) interest income. PAB interest income is subject to special tax rules for alternative minimum tax (AMT) purposes.

Box 11: Bond Premium: The bond premium amortization on tax-exempt bonds.

Box 15: State: The state abbreviation in Box 15 indicates which state issued the municipal bonds reported in Box 8. This information is important for residents of states that impose income taxes.

Other Helpful Resources

Additional Information on Interest Income

Taxpayers can find more information on 1099-INT by visiting the form instructions and IRS Publication 550 (Investment Income and Expenses). More information on the foreign tax credit and Form 1116 can be found on the IRS website.